Feature Stories

18.10.2017

BizInsight@HKUST Forum Examines the Future of Chinese Family Businesses

In mid-September, a distinguished array of speakers shared their insights with a packed ballroom at a hotel in Hong Kong. Highlights of the forum were a donation renewal ceremony recognizing the Tanoto Foundation’s continued support for HKUST Business School’s Tanoto Center for Asian Family Business and Entrepreneurship Studies, and a thought-provoking presentation followed by a panel discussion.

The presentation by the Center’s Director, Professor Roger King, looked in detail at the trends and challenges Chinese family businesses are facing, and pointed to ways forward for their continued growth and success.

At the donation renewal ceremony, Mr Sukanto Tanoto, Founder of Tanoto Foundation and Chairman of RGE Group, once again pledged the Foundation’s generous backing for the work of the Center. This support began in 2012.

“We made the donation then because we strongly believed that there was a genuine need for more research into Asian family businesses and entrepreneurship,” Mr Tanoto explained. He said his desire was to see the Center leave its own lasting legacy as a center of excellence for Asian family businesses.

Both President Professor Tony Chan and Dean Professor Tam Kar Yan, in their introductory remarks, thanked Mr Tanoto for his unwavering support. Professor Tam also went on to acknowledge the quality of the work done by the Tanoto Center.

“In addition to research, the Center invites family business owners to share their successful practices, in courses and workshops designed for family business members and their service professionals,” Professor Tam noted. “To fully realize the educational potential of these activities, there needs to be a constant exchange of knowledge with families, practitioners and academics.”

The donation renewal ceremony acknowledges the generous backing from the Tanoto Foundation

Founders of Family businesses facing succession challenges

Professor King began his presentation, titled Future of Chinese Family Businesses: Trends and Directions from Research. He first looked at the current position of the ethnic Chinese family business operating in Asia and their tremendous contribution to the economies.

Regionally, their success was reflected by the fact that in Indonesia, Thailand, Malaysia and the Philippines, the majority of billionaires were ethnic Chinese, even though people of Chinese heritage made up a small percentage of these countries’ populations.

But there are clouds on the horizon, Professor King told his audience. “In mainland China, the majority of business owners are inclined to have intra-family succession - but this does not match up with the intention of the next generation to succeed to their own family firms,” he said. “Worse still, only a few families had both systematic thoughts, as well as clear plans, on succession.”

Overcoming the ‘Chinese curse’

Professor King underlined the Chinese proverb that “wealth doesn’t pass beyond three generations”. None of the top 100 oldest family businesses in the world are actually Chinese.

“Our own research showed that only a few ethnic Chinese family businesses, with annual turnover over US$50 million, can survive for more than a century.”

Professor King suggested the reasons for this “Chinese curse” were myriad, and included: the “bag-is-packed” mentality reducing their willingness to invest for the long run; an equal or near-equal inheritance spread among male descendants; delayed succession planning; a lack of organizational structures leading to confusion over roles; difficulties in trusting the next generation; and a lack of trust of outsiders.

But he did also have a message of hope. “From our multi-case study on seven centennial Chinese family businesses, we suggest that several things can be done to break the curse.” He listed the importance of transgenerational entrepreneurship, global strategies, a willingness to balance Western and Chinese values, and ownership pruning.

The professor concluded by identifying three trends shaping the outlook for Chinese family businesses. The first concerned the emergence of Asian-style family offices. “We suggest that while a family office itself is a Western concept, with necessary adaptations, it may help serve as the ‘glue’ and regenerate the shared identity for Chinese families.”

The family office could help preserve wealth for future generations, maintain harmony within the family, and preserve its legacy and values. All these were the key desires of families of wealth.

The second trend was a move away from the family business to the business family, especially as families divest from traditional industries and use the familial resources to grow new ventures.

Professor King labeled the third trend as on-going globalization of the family and the business. Global Chinese family teams took in issues such as the different balances now being found between Western and Chinese cultural influences, and the way in which marriages outside the Chinese community were increasingly being accepted. The trend was also concerned about globalized family businesses, their growing geopolitical influence, and the way in which they were increasingly shifting from local low-cost, labor-intensive industries to global innovation-based and/or service-oriented industries.

Youth at the helm

The discussion was livened up with an enlightening panel of young family business leaders. Moderator Professor Winnie Peng, Associate Director of the Tanoto Center, was joined by Mr Richie Eu, Managing Director of Eu Yan Sang Trading (Hong Kong) Limited, Ms Nisa Leung, Managing Partner of Qiming Venture Partners, and Mr Kevin Wong, CEO of Origami Labs and General Manager of Kowloon Watch Company. These dynamic entrepreneurs shared their thoughts behind their choice about embarking on a family tenure (or not) and their future plans.

Mr Wong introduced his family-backed venture into the technology space and believed the knowledge and skills he has learned on his startup journey would eventually benefit his family business. As a next generation leader, he saw that asking the right questions and proactively seeking advice from the current generation would help build the intergenerational trust.

Venturing outside of her family’s textile business, Ms Leung talked about the exciting opportunities created by new technologies, reminding other family business owners that, to compete globally, some of the new technologies can provide a new ground for them to transform their businesses or improve productivity.

Representing the fifth generation of his family-owned healthcare business, Mr Eu believed patience was the key to internalize the dynamics in the existing hierarchy, which rewarded him with the opportunity to raise his own thoughts at a later stage. Showing respect to the older generation and developing talent with a shared passion were also important to win over the trust of senior managers and to professionally run the business.

Commenting on ways to capitalize on the familial resources, Professor King suggested family businesses develop an organizational structure and professional capabilities, and leverage on the next generation’s knowledge of disruptive technology.